Broadcom earnings estimates downgraded after Q4 outlook disappoints

Semiconductor giant warns of a cloudy outlook due to economic uncertainty.

Shares drop over 4% as analysts adjust expectations.

Broadcom Inc. is not immune to the global economic downturn as it has predicted that the gloomy macroeconomic climate and inventory adjustments will hurt its performance in the coming months. The semiconductor giant’s outlook for the fourth quarter was underwhelming, prompting analysts to downgrade their earnings estimates and sending its stock price tumbling.

During a quarterly results call on Thursday, Broadcom forecast revenue of $8.9 billion for the fourth quarter, well below consensus expectations, which stood at about $9.39 billion. The company’s CEO, Hock Tan, cited macroeconomic weakness, customers’ inventory adjustments, and elongated lead times among the reasons for the disappointing outlook.

The subdued guidance overshadowed a better-than-expected third-quarter performance. Its third-quarter revenue surged 21% year-over-year to $8.5 billion, exceeding analysts’ estimates of $8.31 billion. Broadcom also reported quarterly earnings per share of $10.44, surpassing the consensus forecast of $10.21.

However, investors focused on the company’s disappointing outlook. Following the earnings call, many analysts lowered their earnings estimates for Broadcom. Deutsche Bank analyst Ross Seymore said in a note that he downgraded his price target on the stock to $350 from $370 but maintained his Buy rating. Seymore added that Broadcom is still in a solid position in the long term but acknowledged the near-term challenges.

Broadcom is not the only semiconductor company grappling with economic headwinds. The entire industry is facing a downturn due to a combination of factors including high inflation, rising interest rates, and a decline in consumer spending. In addition, the ongoing Russia-Ukraine war and the lingering effects of the COVID-19 pandemic are further exacerbating the challenges.

Broadcom’s stock price has been on a downward trend for the past several months. Year-to-date, the stock is down over 25%, underperforming the broader market. The company’s disappointing outlook is likely to put further pressure on its stock price in the coming days.

Despite the near-term challenges, Broadcom remains a fundamentally strong company with a solid track record of growth. The company is well-positioned to benefit from the long-term growth trends in cloud computing, data centers, and 5G networking. Investors with a long-term horizon may want to consider the recent sell-off as an opportunity to buy Broadcom stock on sale. Broadcom's fundamentals remain strong and its share price is in correction. Long-term investors may see this as an opportunity to buy.